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Fixing the Justice Department’s FCPA voluntary disclosure program

Sometimes bloggers feel like they are howling in the night – is anyone really listening? The universe can be amazing – Deepak Chopra talks about the “synchronicity of the universe,” meaning coincidences are not just coincidences.

How does this esoteric principle apply to FCPA enforcement and compliance? I have been “howling” for a long time about the problems with the Justice Department’s voluntary disclosure program. The FCPA Unit knows that voluntary disclosure has been – and will continue to be—the engine that fuels its aggressive enforcement program. SEC whistleblowers may identify a case here and there but in the end, companies which come in to the Justice Department and confess drive the recoveries and the numbers which have sent shockwaves through the corporate community.

The problem with the voluntary disclosure program is very clear – when a company has to decide whether or not to disclose FCPA violations to the government, it does not know how much the potential “benefit” or “discount” will be when they come in and confess to the Justice Department prosecutors.

In the absence of clear standards, companies face the prospect of uneven justice – benefits which may depend on factors outside their control like who the prosecutor is, a “gut” reaction of a line attorney, supervisor or Criminal Division political appointee. The Justice Department has gone to great pains in the last year to identify the “discount” earned by a company cooperating with the Justice Department. This attempt at transparency is welcome but does not address all the intangible “benefits” that one company may earn versus another. Disparate justice breeds disrespect and undermines the rule of law.

Everyone has pointed to a recent study by New York University Law School Professor Stephen J. Choi and Kevin E. Davis, which concluded that there was no discernible evidence that voluntary disclosure of FCPA violations resulted in lesser penalties. Whether or not the study is valid, and with no disrespect intended, no one was surprised by the study’s finding.

The Justice Department has an opportunity to address the problem undermining its voluntary disclosure process. It should address the issue in its upcoming guidance; but I fear the Justice Department will not do so. Even if the Justice Department decides to address the issue, it cannot do so with platitudes and general language aimed at calming fears of defense counsel and corporate leaders.

Federal prosecutors routinely provide defendants with a prospective outline of potential benefits if they choose to cooperate – it is called a “plea offer.” While I am being a little bit flippant, federal prosecutors in districts will inform a defendant of the specific benefit they may earn – a specific discount in a base offense level for cooperation “within a case,” another discount for cooperation outside a case, and a catch all discount for “extraordinary cooperation.”

Another alternative is to outline specific percentage discounts to companies – 25 percent from the bottom of a sentencing range for cooperation after the government initiates an investigation and knows of the improper conduct, and 50 percent from the bottom of a sentencing range for cooperation if the government was not aware of the conduct. An additional discount could be earned for cooperation against other companies or individuals either involved in the specific case or in a separate and unrelated bribery scheme.

I may be whistling in the dark but justice mandates that this issue should be addressed